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How High Is Up?

Aug 28

How big can craft beer get in San Diego? That’s a question being talked about plenty these days, as the region is now home to more than 70 brew houses.

According to a study released earlier this year by National University System Institute for Policy Research, craft beer in San Diego generated $680.8 million in sales in 2011, the last year with complete statistics. With the continued growth of the industry, 2012 numbers undoubtedly are larger.

So where exactly is San Diego on the growth curve? Just how big is the market anyway, and what will brewers need to do to sustain the momentum?

As a follow-up to a recent West Coaster story about the potential of a craft beer bubble, we called on two industry insiders to get their insights – Vince Vasquez, a senior policy analyst with National University who conducted the independent study, and Brian Scott, president of the San Diego Brewers Guild (he also doubles as the equipment maintenance and packaging supervisor for Karl Strauss). Here’s what they had to say:

How big is the craft beer market in San Diego? And how much more room for growth is there?

Brian Scott; photo courtesy of Karl Strauss

Brian Scott; photo courtesy of Karl Strauss

Scott: We have turned a lot of people on to craft beer, but we still have a ways to go. Craft beer represents 10% volume in San Diego and there are markets like Portland where craft beer makes up more than 20% of beer sales—that’s where we are headed.

Vasquez:  We’re certainly not in our infancy, but there is definitely more room to run in terms of industry potential. And even if a large brewery gets bought by another company or decides to relocate, I think all of the equipment and jobs would be distributed throughout the local industry –it seems to be that strong and collaborative of an industry. And as a think tank, we don’t see that in every industry we look at.

What advantages does craft beer have that other industries don’t?

Vasquez:  The one thing that helps the craft beer industry is that not one size fits all. And it seems the newer guys are more fleet-footed and unconventional. Not everybody wants to be Karl Strauss or Ballast Point. For some it’s about simply having a presence in a neighborhood with 10 employees and a voice in the community.

Scott: Craft beer sales are experiencing double-digit sales growth, and currently represent 10.2% of all beer sales by dollars.  There is a lot of room to grow, and San Diegans have shown a passion for supporting quality, local products. As our San Diego breweries continue to put out quality beer, we believe there is still plenty of market share to grow into.

What are local brewers doing to help build San Diego craft beer as a brand?

Scott: We have put a lot of work into building awareness for our region under the San Diego Brewers Guild umbrella.  The Guild was established to promote San Diego craft beer within San Diego, as well as beyond.  We believe that by pooling our resources to promote our industry, we can grow our awareness and become known as the Napa for craft beer.  The hard work, quality beers and awards won by our talented brewers have helped make San Diego a thriving beer scene that we are anxious to promote.

Vasquez: Look at how Napa came together as a community to create a wine destination. That’s something that San Diego certainly could emulate. Can someone from Topeka, Kansas, clearly articulate what makes San Diego craft beer unique? They probably can about Napa wine. It’s all about highlighting an industry in one region, and that’s the power of marketing and branding.

Vince Vasquez; courtesy of Vince Vasquez

Vince Vasquez; courtesy of Vince Vasquez

What obstacles could impede the growth of craft beer?

Vasquez: Having the bigger breweries saying that what they are making is craft when it’s not. That’s a real serious threat to this industry. From my perspective as a consumer, you are seeing a blending of what craft beer really is. Posers are coming in and they are getting away with it. Only the beer geeks and the industry guys are the ones calling them out on it, but what about your typical consumer? If you see Budweiser’s idea of a craft beer next to a Ballast Point Sculpin, will there be some who will be fooled? You need a mechanism (such as certification) that allows for those who are making real craft beer to be identified as such.

Scott: I foresee a couple obstacles.  There is definitely the issue of the macros – Bud, Miller, Coors – trying to blur the line on what is a craft beer.  But the craft beer consumer is savvy.  Craft beer stands for more than quality.  Craft stands for local craftsmanship, pride, craft stands for community involvement, it stands for local economic development, it stands for more jobs, and most craft brewers stand for sustainability. Craft beer consumers want to support all of that in addition to knowing who is brewing their beer.  The craft beer consumer appreciates the hand-crafted effort to put out the best beer possible made from the finest ingredients, not short cuts just to gain volume and dollar advantages.  The other obstacle is natural market supply and demand. Craft breweries use the best malts and hops and as the number of breweries grow, the demand for these ingredients may outweigh the supply.  Plus, the speed of retail adoption is lagging the growth of new breweries.  There is a real need for retail education and the loosening of the Big 3 on the big box retailers to allow more craft on the shelf. It’s tough to get more craft sku’s on the grocery shelf when a macro is setting the schematic.  Retailers are savvy too though and they are coming around.  They see the consumer demand and you will definitely notice a difference today than 5 years ago.  We just need it to transition quicker.

How important is craft beer tourism to the sustainability of the San Diego market?

Scott: Tourism is huge in San Diego. Our economic impact as an industry is starting to gain recognition, and as we continue to win more medals and put out top-notch beers, we can see tourism growing even more.

Vasquez: The largest craft brewing event in the region is San Diego Beer Week. It brings more than 20,000 participants to the county. Our study found that the 2011 Beer Week generated 3,612 hotel room nights and $469,307 in additional hotel revenue. (In 2012, the event brought in an estimated $780,000 in hotel revenue).

In light of San Diego Beer Week funding cuts from the Tourism Marketing District, are there any collaborative marketing efforts among breweries?

Scott: We are working with our Guild members to rally around San Diego Beer Week to promote our craft to the city and beyond. In particular, we are working with the breweries to really promote the official kick-off event, the Guild Festival, because this is our major source of revenue for the coming year.  The Guild is working diligently to help provide member breweries with the promotional tools they need to generate awareness and buzz for San Diego Beer Week, the Festival, and their own businesses.

So what’s next for craft beer in San Diego?

Vasquez: There has to be some strategic planning on an industry-wide level to really decide where craft beer wants to go from here. It’s going to be challenging.

Scott: We have doubled the number of breweries in San Diego in the past four years. That is great. The growth is very rapid, but beer sales and tasting room visits have shown that consumers support this number of breweries and local commerce. As a guild, we want to advocate smart growth with a continued focus on quality and continue to live up to the world-class reputation San Diego has created.

Scott, viewed through glass at the new KARL tasting room

Scott, viewed through glass at the new KARL tasting room

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5 Responses to “How High Is Up?”

  1. dkl

    I don’t see the correlation with Napa Valley. Brewers from San Diego all use the exact same grain, hops and yeast as 99% of the rest of the region/state. None of the ingredients (except maybe the yeast) in native to San Diego. Even the water needs to be treated and conditioned before using it to brew. There is nothing intrinsic about San Diego beer that can’t be duplicated anywhere else.

    Napa Valley wine on the other hand is unique because the grapes grown there are different than grapes grown in Sonoma, Santa Barbara, France, Italy, etc. The ingredients in Napa Valley wine make it “Napa Valley Wine” and it trades for a premium vs. its competitors.

    Also, with the exception of a very few places, the beer is brewed in the business parks of Vista, San Marcos and Mira Mesa. I don’t know how well that translates into a destination.

    • Bob

      White Labs is from San Diego.
      Where isn’t the water treated for brewing?

      • John

        Yes White Labs is here who produce almost all if not all the yeast for SD brewers. The water is treated but for most brewers that just means a charcoal filter to strip the chlorine out and not do much else. SD water is intrinsically harder which increases both percieved and actual bitterness in a beer resulting in water perfect for brewing the styles of beer SD has become famous for, IPA and IIPA. As far as hops there are several local farms in Julian, Ramona, and Temecula who are producing hops for the local industry. Certainly not on the scale of what is coming out of Yakima but they are perfect for doing wet hop beers during harvest time in the fall. But thats just like my opinion man.

  2. Omar Passons

    Westcoaster has been on fire with its content lately. That’s great. This is no exception. Vince is obviously very bright and talented and I’ve heard good things about Brian, so it’s great to hear from both of them. One of the most underrated aspects of the craft beer industry is its role in shifting community development. This isn’t just about helping neighborhoods in terms of economic growth, it is also a quiet form of marketing that is significantly better than a banner. People who are not prone to thinking about or participating in craft beer events or businesses can still be led to support the industry by realizing how far it actually reaches in San Diego. There is a role in the biological sciences, a role in continuing education–even without a college degree–and a role in neighborhood safety and reusing old buildings. As more people understand that breadth of exposure, craft beer can become not just about incredible quality but about shaping parts of our social fabric. It might seem a little out there, but ask a landlord near a neighborhood brewery what she thinks or a neighborhood volunteer who has seen crime drop around a craft beer centric bar if the industry has far reaching effects. Again, nice work.

  3. Brian and Vince are both terrific leaders in our craft beer community – kudos to West Coaster for sharing their insights! It’s been a tremendous pleasure and privilege of mine to work with the craft beer community through my role with the San Diego Tourism Authority, and I am happy to share that the tourism community embraces the power of craft beer just as much as vice versa.
    Together, we’ve been able to accomplish great things – coverage in the New York Times, Time Magazine, and more – but our work is just getting started. We won’t stop until San Diego and beer are truly as synonymous as Napa and wine! We can’t wait to share with the world the amazing developments that the future holds for San Diego craft beer.